Short-selling research firm Citron Research claims Philidor Rx and R&O, which both have links to Valeant  (VRX) , are the same company and share management, which it asserts is the "smoking gun" regarding the drugmaker. Citron went on to say in a newly published report that it believes the "whole thing is a fraud to create invoices to deceive the auditors and book revenue." Shares of Valeant, which have been weak in recent days following its earnings report and announcement of a change in business strategy, are sharply lower following Citron's claims.

SMOKING GUN: On Monday, not-for-profit news group SIRF uncovered undisclosed relationships between Valeant and specialty pharmas, namely Philidor RX. According to SIRF, court filings in California show R&O Pharmacy claims it had received an improper demand for payment from Valeant. The New York Times subsequently questioned whether Philidor was the target of subpoenas recently served on Valeant over its pricing strategy. Valeant explained during its earnings call that it had purchased an option to acquire Philidor late last year and has consolidated Philidor's results in its own financial statements. In its report, entitled "Valeant: Could this be the Pharmaceutical Enron?", Citron cut its price target on Valeant shares to $50.

PRICE ACTION: Following Citron's report, Valeant shares plummeted to as low as $105.98. The stock recovered a bit to be down about 18% at $120 per share in morning trading. Allergan  (AGN - Get Report) , maker of Botox and itself a company that is the product of multiple acquisitions, was trading down $10.79, or 4%, to $252.63. Horizon Pharma  (HZNP - Get Report) , also mentioned in yesterday's New York Times article, was down $1.21, or 8%, to $14.05.

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